Friday, October 12, 2012

The role that experience and exposure plays in strategic instinct and risk perception



Recently I read an article titled ‘Execution as Strategy’. The title fooled me into thinking that authors are talking about a new approach to strategy. Fortunately, to my understanding, there wasn’t any such attempt in the article because execution is not strategy. In fact another good article that I read this week, ‘Strategy or Execution', which is more important’ clearly explains why execution is not strategy. I am still puzzled over the choice of title to the first article I mentioned above. It nevertheless is an intriguing and insightful article.

From a research, covering 18 companies (in emerging economies), across Asia, Latin America and Middle East, the authors present cases of three companies and their approach to business growth. They all focused on execution as strategy, authors claim. I do not agree with them that execution is the strategy or that these companies do not have a strategy. But those cases presented an interesting picture. They highlighted the difference in strategic make-up and the relevance of it in strategy formulation.

What is the role that experience with respect to stability / environment / economic conditions play in the minds of people who strategize?  The way they perceive risk? The way they operate? A business that has roots in a country known for instability and environment hardships and handled all of them would in all probability be better positioned to take on risks that a western company would hardly be prepared for. The article, 'Execution as strategy' presents the case of Orascom Telecom's, which is from Egypt, entry into turbulent hotspots like Jordan, Lebanon, Yemen, Tunisia, and Algeria and to places like North Korea to capitalize on business opportunities to grow the business. How many western telecom players would consider these countries as potential market for entry? These countries do present business opportunities and some of them with huge markets, yet not all who are capable would enter these markets that too straight away  It requires experience of handling things in similar markets or terrible guts. Not just that, but readiness to compromise on some of the proclaimed corporate values. That begs a question whether companies from the developed world are at a disadvantage, irrespective of their strategy and operational capabilities and sophistication, compared to companies from emerging economies in capturing business opportunities in emerging countries?

It’s not just entering turbulent / unstable economies that emerging economy companies have advantage in but also they can decide and act quickly as exampled by Grupo Bimbo’s case, as given in the article ‘Execution as strategy’. Businesses for which stability is not a given and grew up in fluctuating environments would move faster to seize opportunities. They would probably not go through tedious strategic planning exercises to vet numbers and then decide on entry. Planning an entry in five years’ time or even in two years’ time, as would many western companies plan, would be foreign to them.

Strategy is about choices but how aggressive are those choices and how quickly a business can strategize and move are determined by the background of a business or the people who lead the business if we go by the cases presented by the authors of ‘Execution as strategy’.  In the article they claim that businesses from emerging economies have a higher appetite for risk and higher tolerance for failure. So the strategic make-up  if I could it term it that way, plays a vital role in the strategy of a business. How aggressive is the strategy and how quickly a business decides and acts is hugely determined by the strategic make-up of the company. 

3 comments:

Jenifer L.Johnson said...

Hello Balajhi Narayanasami,

Very interesting analysis of both the article and the larger picture of emerging markets vs. established markets (if I can make a dichotomy that is not as clean as it sounds).

For an American working in Europe in times of great economic, financial and social upheaval, I am tantalized by the idea of business leaders needing to make decisions in emerging and unstable economies being more agile, faster and more prepared to move and shake than their staid counterparts in Western geographies.

I would love to read your own expanded thoughts on this, outside of the article you analyzed. It could very well be that both small and large business initiatives anywhere in today's world would benefit from learning from this agility you refer to.

I would also like to see how this "agressivity, risk-taking, and tolerance for failure" is different than the simple mistake of moving to action before the core elements of a business are defined. Many of my clients are ready to act before they have done an analysis (during weeks or months, not years) of their public, sector, communication needs, etc.

I believe there is a difference, but I don't know enough about emerging markets to be able to see it clearly. Perhaps you could help me, drawing from your own analysis and experience.

I am fascinated by the following ideas from your post:

Strategy is about choices [and] how aggressive are those choices and how quickly a business can strategize and move are determined by the background of a business or the people who lead the business [...].

[...] businesses from emerging economies have a higher appetite for risk and higher tolerance for failure. So the strategic make-up if I could it term it that way, plays a vital role in the strategy of a business. How aggressive is the strategy and how quickly a business decides and acts is hugely determined by the strategic make-up of the company.

I also like the term "strategic make-up" and wonder if another term could be coined to discuss this phenomenon: "strategic context".

Thank you for widening my scope of vision and I hope to learn even more as you continue to write about this theme that could directly affect my own work and world-view.

Sincerely,

Jenifer L. Johnson
www.laestrategiablog.com/eng

Balajhi Narayanasami said...

Thanks Jenifer for such a detailed comment. It's quite thought provoking and certainly helpful further deepening my understanding of the point. I have split my response into two comments due to the limit on length of comments.

The insight behind this article is the importance of role that experience/exposure of strategists play in the strategies they help build. When you are used to instability in the environment (business, social, regulatory and government actions) and have faced hardships that come with such environments as a business / business person you would obviously be used to quicker decision making, quick actions and as a result have more appetite for risk. So my question is, would this put a business that faced and handled tough and unstable environment at an advantage in an instable environment when competing against businesses from the west, which are used to stable environments? By no means can we say western businesses are ‘staid’ but they certainly are pampered by stable environments that they would wary of risks which a company like Orascom would easily take up and make money from. Take Tatas of India for example. Tata Motors took over Jaguar and Landrover in a fashion that they came in for huge criticism that they stretched themselves too thin and exposed themselves to enormous risk by taking up huge debt. Years moved on and they have turned over the operations of Jaguar and Landrover and the positive effects can be seen their balance sheets. An Indian company, which of course is used to somewhat stable environment compared to places like Egypt, Pakistan etc., had the guts that a western automaker didn’t have when these marquee brands were put up for sale by Ford. It is not just the business value / opportunity one sees but also how people perceive the inherent risk in an opportunity that determines many a business decision. It is that decision, which the authors of that article feel and I also concur, which is hugely influenced by the background of people/business in terms what they were exposed to and has experienced. Surely agility helps when it is there. When you are used to high standards of expectation, you would then certainly struggle to move faster when you see more bumps ahead than what you are used to.

“I would also like to see how this "agressivity, risk-taking, and tolerance for failure" is different than the simple mistake of moving to action before the core elements of a business are defined.”

The difference I think is in deciding not in acting. You decide to do something based on your assessment of what is in store for you. When your instinct is strong then you would probably start moving even before the detailed analysis. But if you are not able to decide on whether to do something or not then you wouldn’t move before deciding. It is that decision making process which I think is influenced by the experience/exposure of strategists. Perception of risk and the way they way opportunities are viewed speed up or dampen decision making.

Balajhi Narayanasami said...

“I believe there is a difference, but I don't know enough about emerging markets to be able to see it clearly. Perhaps you could help me, drawing from your own analysis and experience.”

There definitely is a difference and more so when there is some sort of dictatorial regime in place. India, where I come from, is relatively stable environment. The economy and the society cannot be compared to west but the business environment has been quite friendly for nearly 3 decades. But doing business in Middle East, in some of the African countries and also in some parts of Europe like Algeria it could be different. But they all present opportunities for businesses. It is there were businesses from environments similar to ones that present opportunities , could out pace western companies. But then there is another point, that of sticking to ethics and policies regarding staying away from certain places / environments. But then there is also a business opportunity that goes begging.


“I also like the term "strategic make-up" and wonder if another term could be coined to discuss this phenomenon: "strategic context".”

I wasn’t comfortable using the term ‘strategic make-up’. But then couldn’t figure out a term better than that. Context is a good term but we generally use it to refer a situation and also it could mean the situation in which the strategy is made. But I was talking about the mind-set of people, the way they see, perceive risk and opportunities. That was the dilemma. Initially I thought of ‘Strategic mind-set’ but not sure whether that conveyed. On hindsight may be mind-set is a better word than make-up. What do you think?

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